Operations Review

As at 31 December 2019, our total planted area stands at 232,940 hectares (ha). Through joint ventures, we own plantations in Uganda and West Africa of approximately 46,000 ha. Wilmar also directly manages 35,391 ha under smallholder schemes in Indonesia and Africa, and another 157,515 ha under smallholders schemes through associates in Africa.

In recent years, we took the opportunity of the relatively low palm oil prices to step up our re-planting programme and thus maintaining the average age of our plantations at a relatively young 11 years. This will support the medium to long-term growth of our plantation operations. Around 54% of the plantations are at the prime production age of seven to 18 years and 29% are at age six years and below.

Sustainability is an integral part of our business and operations. Since announcing our No Deforestation, No Peat, No Exploitation (NDPE) policy in December 2013, we have continued to further our commitment to drive sustainable practices and encourage collective action to accelerate supply chain transformation.

In November 2019, we published an updated NDPE policy following an extensive consultation process with stakeholders including non-governmental organisations (NGOs) and subject matter experts. The updated policy is better aligned with globally recognised frameworks and guidance, and incorporates our commitments to health and safety, human rights and whistleblowing.

For more information on our sustainability efforts, please refer to the Sustainability chapter.

We process and merchandise palm and lauric oils, sourced from our own plantations, smallholders and third-party suppliers, into refined palm oil, specialty fats, oleochemicals and biodiesel.

Through economies of scale and commitment to best practices in production, we have been able to sustain as one of the most cost-efficient producers in the industry. This efficiency is complemented by our strategically located facilities found near the coastal areas of both origin and destination markets, which enable us to manage transport, logistic and operational costs effectively. Together with an extensive distribution network and sales touchpoints spanning more than 50 countries and regions, Wilmar is well-positioned to capitalise on market intelligence acquired throughout the entire supply chain to meet the ever-changing demands of our customers.

Within the Tropical Oils segment, our activities also include manufacturing, merchandising and distribution of consumer pack branded tropical oils. We are the leading producer and seller in markets such as India, Indonesia, Vietnam, Bangladesh, Sri Lanka and several African countries. In the key locations of India and Indonesia, we have market shares of around 20% and 35% respectively.

During the year, we completed the purchase of Cargill Palm Products Sdn. Bhd’s edible oil facilities in Kuantan, Malaysia. We have also started on the process of building an edible oil refinery and specialty fats processing facility in Port Klang, Malaysia. In 2019, our consumer packaging plant in Thilawa, Myanmar, commenced operations. It is the largest edible oil packaging plant in the country.

As at 31 December 2019, the Group has plants located in the following countries:

Note: Refinery capacity includes palm oil and soft oils

In 2019, global palm oil production grew 2% from 74.2 million MT in 2018 to 75.7 million MT. The two largest producing countries, Indonesia and Malaysia, accounted for about 84% of global palm oil production. Indonesia’s production increased 1% to 43.3 million MT and Malaysia’s production grew 3% to 20.0 million MT.

Global demand for palm oil grew 9% to 77.9 million MT in 2019. Demand in Indonesia increased 20% to 14.5 million MT mainly due to the B20 biodiesel mandate. Demand in India increased 10% to 10.3 million MT as edible oil consumption grew. Demand in China increased 27% to 6.9 million MT as a result of a reduced supply of substitute products such as soybean oil and lard due to the African Swine Fever (ASF).

Crude palm oil (CPO) prices were on a downward trend in the first half of 2019 due to subdued demand and higher-than-expected production output. Prices started to recover in the third quarter of 2019 and surged in the fourth quarter on the back of higher demand anticipated from the expanded Indonesian biodiesel programme (B30), stronger uptake from China due to the prevalence of ASF and concerns over a supply shortfall due to slower production output growth. CPO prices closed at RM3,052 at the end of 2019, up 41% from RM2,166 at the beginning of the year.

In 2019, pre-tax profit for the Tropical Oils segment increased by 54% to US$841.6 million from US$546.1 million in 2018, boosted by good performance from merchandising activities and downstream processing margins.

In Plantations, production yield decreased by 7% to 20.1 MT per ha in 2019 from 21.6 MT per ha in 2018, impacted by the Group’s younger plantation age profile due to its recent replanting activities and unfavourable weather conditions. This resulted in a 7% decrease in total fresh fruit bunches production to 3,914,613 MT for the year.

Supported by strong sales volume in the first nine months of the year, overall sales volume for the manufacturing and merchandising businesses increased by 5% to 25.6 million MT in 2019. However, weaker commodity prices in the current year led overall segment revenue to decrease by 9% to US$15.54 billion in 2019 from US$17.06 billion in 2018.

Global palm oil production is expected to decrease marginally to 76.3 million MT for the marketing period from October 2019 to September 2020. Expectations of lower production in 2020 are due to the lagged impact of dry weather conditions and the reduction of fertiliser application when CPO prices were low in the first half of 2019.

Demand is expected to sustain as Indonesia implemented the B30 biodiesel programme in January 2020. Furthermore, with the resumption of the CPO export levy in Indonesia starting January 2020, we are optimistic about the outlook of our downstream businesses in Indonesia. However, the outbreak of the 2019 novel coronavirus (Covid-19) may have some short-term impact on our operations in China. Nonetheless, we remain positive about the long-term prospects of palm oil with the rise of global demand for our food and non-food applications such as oleochemicals and specialty fats.